Stock market today: Stocks slip as US economy starts to show cracks

Several signs suggest that the US economy might be starting to show cracks:

1. Decline in job openings: In April, job openings fell to their lowest level since February 2021, indicating a possible rebalancing in the labor market.

2. Weaker-than-expected manufacturing data: The latest ISM manufacturing report for May came in below expectations, with new orders and production at their lowest levels since 2023, raising concerns about the health of the US economy.

3. Oil prices sliding: Oil futures have been declining, partly due to concerns about oversupply and waning demand heading into 2025.

4. Slowing economy of US trade partners: The slowing economies of China, Japan, and Europe could have implications for US trade and economic growth.

5. Rising delinquency rates for consumer loans: This is one of the 10 downside risks to the US economic outlook highlighted by Torsten Sløk, chief economist at Apollo Global Management.

6. Federal student loan payment restart: The resumption of student loan payments is another risk to the US economy, as borrowers may not be ready to resume payments, affecting their ability to spend in other areas.

7. Slowing banking sector loan growth: Since March, the banking sector has been stepping on the brakes, affecting new lending to both consumers and corporations2.

8. Increase in interest coverage ratios: Interest coverage ratios for both investment-grade and high-yield business debt have been falling, indicating potential difficulties in meeting interest payments on debt.

9. Rising interest payments for the US government: Higher interest payments for the US government are another downside risk to the economic outlook.

10. Households running out of excess savings: US households are running out of their excess savings accumulated during the early stages of the pandemic, which could lead to reduced spending and economic activity4.

Investors are being cautious about the trajectory of interest rates due to several factors. Recent weak manufacturing data has prompted Wall Street strategists to scale back their optimism for economic growth, which supports a case for rate cuts. However, Federal Reserve officials have warned against hoping for a pivot anytime soon as they wait for inflation to cool sufficiently. The timing of when inflation will cool enough is not clear, adding to the uncertainty. Additionally, the labor market is showing signs of rebalancing, with job openings falling to their lowest level since February 2021. These factors create a dilemma for investors trying to anticipate the path of interest rates.